Investment behaviour is too focused on short-term strategies,
according to James Anderson, a member of Professor John
Kay’s Advisory Board for the review of the UK
equity markets and partner at Baillie Gifford.

Anderson spoke to Global Investor/ISF following the
announcement that the UK Collective Engagement Working Group
– which Anderson chairs - is launching an Investor
Forum to promote commitment to long-term strategies among asset
owners, asset managers and companies. The group was set up to
take forward one of Professor Kay’s key
recommendations on promoting better engagement between
investors and companies.

Anderson believes that change is needed in
London’s finance centre.

"It’s very sad how the dialogue in London has
become so dominated by the combination of investment banks and
hedge funds."
"It’s a constant battle within investment
organisations, inside the city, governance to try to think
about the long term rather than respond to the latest
headliners."

He said it is "deeply depressing" to see asset owners focusing
on the short term, for example considering it important to look
at performance on a three-month or one-year basis. He added
that "we need better ownership on that level".

But Anderson admitted that trying to change investment
behaviour is no small feat:

"It’s going to be a long-term effort to try to
reverse the pendulum that’s been swinging the
wrong way for the past 30 years."

"Quite a lot has been going on [to try to change things] but
it’s a bit depressing the sheer amount of work and
persuasion needed to get enough of the community involved. But
I think the people who have signed up to the group or invited
to join are doing it out of genuine belief that we need to
change things."

"I’m encouraged there’s a group of
influential long-term investors - that have very heavy
ownership of our major corporates - that want to do something
about it."

One of the group’s major breakthroughs has been to
encourage the involvement of foreign investors.

"One big issue up until now is that people wanting to get
involved have been UK-based but the bulk of equity in most
British companies is owned by overseas institutions.
I’m pleased we’ve [been able to
invole] some large American institutions and sovereign wealth
funds – that’s a big step
forward."

The new forum will focus on driving culture change by
developing a shared sense of partnership among asset owners,
asset managers and companies and will try to encourage
companies to think about their underlying strategy.

"I’m determined that we should talk to companies
before you get to a series of real problems where you might
need to take action in a dramatic sense. But that
doesn’t mean we’re not prepared to
try and be quite serious if there are structural problems at
the end of it."

Anderson is particularly critical of companies motivating
employees by pay:

"Without exception all the truly great companies in the world
are not obsessed about their levels of compensation or how much
executives get paid. There are more important things than pay
and one of our great problems is people tend to think
motivation is only about pay."

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